Please standby, we are about to begin. Good day and welcome to the Duke Energy second quarter earnings call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Mike Callahan, Vice President of Investor Relations. Please go ahead, sir.

Thank you Derrick. Good morning everyone and thank you for joining Duke Energy's second quarter 2019 earnings review and business update. Leading our call today is Lynn Good, Chairman, President and CEO, along with Steve Young, Executive Vice President and Chief Financial Officer. Today's discussion will include forward-looking information and the use of non-GAAP financial measures. Slide two presents the Safe Harbor statement which accompanies our presentation materials. A reconciliation of non-GAAP financial measures can be found on duke-energy.com and in today's materials. Please note, the appendix for today's presentation includes supplemental information and additional disclosures. As summarized on slide three, during today's call Lynn will provide an update on the quarter and progress on our strategic initiatives. She will also discuss legislative and regulatory activity in North Carolina. Steve will then provide an overview of our second quarter financial results and an insight about the economic and load growth trends. He will also provide an update on our regulatory and financing activities this year before closing with key investor considerations. With that, let me turn the call over to Lynn.

Mike, thank you and good morning everyone. Today, we announced strong results for the quarter with reported and adjusted earnings per share of $1.12 compared to $0.93 in the prior year. Our results to-date represents 6% growth over last year and give us confidence as we reaffirm our 2019 adjusted EPS guidance range of $4.80 to $5.20. We also reaffirmed our long-term earnings growth target of 4% to 6% through 2023. With solid growth across all three operating segments, we are executing our long-term strategy to transform the customer experience and deliver value for our shareholders. Our investments in the energy grid, cleaner generation and natural gas infrastructure ensure Duke Energy is well-positioned to build a smarter, low carbon energy future. In addition, we remain committed to the dividend and for the 13th consecutive year, we increased our quarterly dividend to shareholders. Shifting to operations, let me highlight several noteworthy accomplishments on slide four. First, Piedmont Natural Gas was recognized as one of America's most trusted brands among utilities, continuing to prove that franchise's value as well as its unwavering dedication to safety and impressive customer service. And we also remain steadfast in our focus on operational excellence. I am very proud of our employees' commitment to providing reliable, affordable and increasingly clean energy to our customers every day. This was exemplified the strong performance of our system during the recent sustained heat wave. Our teams demonstrated exceptional preparation and collaboration across the company and the fleet performed well while serving near record loads in the Carolinas, the Midwest and Florida. Turning to slide five, let me provide an update on how we are advancing our strategic initiatives to generate cleaner energy. In our electric business, the $1.1 billion Western Carolinas Modernization Project in Asheville remains on track. On August…

Thanks Lynn and good morning everyone. I will start with quarterly results on slide eight including our adjusted earnings per share variances to the prior year. For detailed information on variance drivers and a reconciliation of reported to adjusted results, please refer to the supporting materials that accompany today's press release and presentation. On both a reported and adjusted basis, 2019 second quarter earnings per share were $1.12. This compared to reported and adjusted earnings per share of $0.71 and $0.93 respectively last year. For the quarter, higher reported and adjusted results compared to the prior year were primarily due to growth from investments at the electric and gas utilities, the commercial renewables project placed in service and favorable timing of O&M expenses. Within the segments, electric utilities and infrastructure was up $0.13 compared to the prior year. The segment continued to benefit from base rate increases across multiple utilities as well as higher rider revenues that include recovery of our Midwest grid investments. O&M was also favorable $0.07 in the quarter. These positive drivers were partially offset by higher depreciation from a growing asset base and higher interest expense. Shifting to gas utilities and infrastructure, results were up $0.02 in the quarter. The increase was largely due to growth from our midstream investments. As a reminder, we expect the LDC businesses to deliver the bulk of their remaining earnings contribution in the fourth quarter. In commercial renewables, results were up $0.06 driven primarily by our North Rosemont solar project placed in service. This was partially offset by below normal wind resource and a prior year favorable contractual settlement. Finally, other contributed $0.01 for the quarter and share dilution drove a $0.03 decline, given we issued shares in December to settle last year's equity forward agreements. Overall, we are pleased…

[Operator Instructions]. We will take our first question from Shar Pourreza with Guggenheim Partners. Please go ahead.

Hi. Good morning guys.

Hi Shar. Good morning.

Good morning.

I want o delve into Carolina's policy a bit and this may be a question for Lloyd. So in South Carolina, you obviously got a low ROE negative outcome for coal ash which is on appeal. How is sort of the dialogue going in North Carolina? I mean they are obviously seeing what's going on and the two jurisdictions have been somewhat aligned in the past. You have the Piedmont case and you are eventually going to file a Duke in progress in the state. So how is sort of the conversations flowing in North Carolina, especially head into these GRCs? Should we be, I guess, concerned as there is some readthrough to what we are seeing in South Carolina just from a regulatory constructs standpoint?

Shar, I want to be clear that we do not see a readthrough from South Carolina to North Carolina. North Carolina has historically been a very fair, impartial regulatory jurisdiction that recent decisions based on facts and evidence presented follows the law and we would certainly expect that to be the case as we think about regulatory outcomes moving forward.

Got it. Okay. That's helpful. And then just on Senate Bill 559, obviously in the prepared remarks, it's still sitting at the House. It's not on the calendar for a vote and you certainly highlighted budgetary, the lack of a budget as being one of the items that's curtailing it. Is there sort of anything else you want to highlight that could be a push or take? Do you have sense on sort of timing? Are we going into sort of a special session? So any sort of incremental color on how the conversations are flowing would be very helpful.

Shar, we are very pleased with the progress that we have made with Senate Bill 559. We have strong bipartisan sponsorship of the Bill and as you indicated we are in the Rules Committee really waiting for other priorities that the general assembly has in front of them, specifically the budget. I think it's important to recognize that the Bill sponsors have continued to express support for moving this legislation and it is historically the case in North Carolina legislation that is taken up after the budget or even during the budget impasse. So we continue to actively advocate for the Bill. We think the customer benefits and the policy involved and embodied in the Bill are very strong. Customer benefits, reducing costs for storms in the range of 15% to 20% and the policy allows for stakeholder settlements and engagements to develop an investment plan that delivers value to customers from storm hardening and resiliency to renewables and the improvements to customer experience. And recently in the House, we also added provisions to encourage low income investment. So we think the combination of good policy and clear benefits to customers are very strong attributes of this Bill and we continue to advocate for it. I think in terms of timeline, we will have to see how these other priorities continue to shape up. There is no specific timeline I would share with you but we will continue to update as progress is made.

Got it. Thanks. And then just strategically, Lynn, it's the last question. I know you typically shy away from commenting on any strategic moves, but you have given us some sense on how you think about Santee Cooper and its ongoing process in South Carolina. If you sort of shift to Florida, is there any interest in JEA in case they pursue a privatization. I know the process has obviously started and the bids are due by September 30. Is there any interest there?

Shar, we evaluate opportunities as you would expect as we see things that are in our service territory that we think are a fit for us. So that would be evaluating within the broad context of our business plan and we feel like our organic growth opportunities are quite strong and that would be our highest priority.

Got it. Congrats guys and a great start.

Shar, thank you very much.

Thank you.

Thank you. We will next go to Greg Gordon with Evercore ISI. Please go ahead.

Thanks. Good morning.

Hi Greg.

Good morning.

So you guys had a really solid first half, $2.36. And I know that you are flagging some timing issues. But even with those taking into account, adding back your assumption of normal weather and then to the point that some of the point Steve made with regard to things that were positive drivers in the first half that should continue to be positive drivers in the second half, you would only need to do $0.01 better than last year and the second half to hit current consensus of $4.90, $0.15 to get to $5. So I am just wondering if you are comfortable articulating a little bit more where you think you will be in the range given that it seems that consensus might be a little bit too low for the balance of the year unless I am missing some big negative driver that you haven't disclosed?

Greg, I will take a shot and then Steve can follow. Our typical approach on resetting specifics within the range follows the third quarter, which is just a statement of the obvious about how significant third quarter can be. So we will fine-tune the range as we historically have. But I think all the points that you are making around the strength of the start to the year, the way we are executing on our plan and the way we are controlling costs, the way we are working through the regulatory outcomes gives us high degree of confidence within the range. So I think we are off to a strong start and the team is focused on delivering and I would expect us to do that. We are waiting to see how weather in August and September plays out. So Steve, have at it.

How has weather been through June and July relative to normal?

So July has been hot, no doubt.

Yes. July has been, we have seen some favorable weather. The only thing I would add in terms of the last half of the year is a bit about shaping. We do have, as I mentioned, some renewables projects that are slated for the fourth quarter and we provided an exhibit there. But in terms of the year as a whole, I echo Lynn's comments entirely.

Right. So just to build on that statement, you do have a higher amount of net new megawatts coming into service in the second half, about 136 megawatts net increase even though that is shaped predominantly in the fourth quarter. At least that's the way --

That's right. And you know, Greg, the other thing I would point to in the back-half. You may remember Florence and Michael in the third and fourth quarter last year. So that's another consideration you should think about O&M.

Great. Well, congratulations. It sounds like you are setting up to have a good year. So congrats.

Greg, thank you. I appreciate that.

Thank you.

Thank you. Our next question comes from Stephen Byrd with Morgan Stanley.

Hi. Good morning.

Good morning Steve. How are you?

Good morning.

Doing great. I wanted to touch base on North Carolina legislation. If the legislation is enacted into law, I just wanted to get your latest thoughts on what kinds of opportunities, perhaps longer term in terms of additional CapEx, additional areas of focus and spending, if you get that kind of support that we have been looking for?

Stephen, I would think about Senate Bill 559 as being an enabler of the capital plan that we have laid out over the next five years. You will note that we have more investment in the delivery system really as part of the transformation that we see in the industry. And Senate Bill 559 provides an investment mechanism that very closely matches the investment with the benefits to customers. So I would think about it in that context. And as we think about actually putting 559 into place, we envision a stakeholder process where the investment priorities over the multiyear period would be informed in a way that drives the policy in the state. So this gives us a great opportunity to tailor those investments in a way that drives customer benefits. But I would think about it within the context of the plan we have in front of you. We think it's just very good policy at this stage of the industry transformation.

Understood. Then maybe shifting gears over to Atlantic Coast. Obviously we had an unfavorable ruling from the Fourth Circuit on the Biological Opinion and Incidental Take Statement. In the unfortunate event that a revised BO and ITS is also vacated again, would you mind just talking at a high-level to the range of options, whether that be other sources of natural gas, other approaches, generation needs? And I think just I know it's premature to talk in detail about what might be done but just as I am trying to think through the range of options would you mind just speaking to that at a high level?

Sure. And there two points I would like to make, Stephen, on this. And the first one is that we are evaluating this order working closely with project partners and also efficient wildlife. There is an extensive work done. We are in the field now with surveys. And our intention is to work with the partners and federal agencies to address the Fourth Circuit concerns and in a manner that will withstand further challenge. That is our highest priority but I think the question that you are raising is one about the longer term implications and I would go to the business case for this investment in answer to that question because the business case remains extraordinarily strong. We need this infrastructure. Eastern North Carolina need this infrastructure, not only for the delivery of natural gas but for continued reduction in carbon emissions as we move away from coal. And so we will continue to pursue ways that we can get that infrastructure into the state but our highest priority and we think the best business case for customers is Atlantic Coast Pipeline.

Understood. Thank you very much.

Thank you.

Thank you.

Thank you. We will next go to Michael Weinstein with Credit Suisse. Please go ahead.

Hi. Good morning.

Good morning.

Good morning.

If you could just talk about the timing of O&M that was mentioned in the quarter? Just wondering what are the issues that were being -- that contributed to different timing of O&M throughout the year?

Yes. What I was referring to basically relates to some outages and timing of outages year-over-year. So you will see some non-storm O&M timing that might turn around in the second half of the year. Lynn mentioned storms in the prior year. And if you look at storm O&M in the second half of the year, if we have a more normal second half of the year you might see some favorable O&M coming from that. But some of the non-storm O&M may turn a bit in the second half of the year just because the timing of plant outages and that type of work. So I was just trying to give some flavor for it. We are very pleased with our efforts on O&M in the first half of the year. In response to the mild weather we saw in January and February, we enacted some efforts in our O&M agility, is the term we use internally, to help offset some of the impacts of that. And that's showing up as part of the $0.07 but some of its timing as well.

Got it. And on the commercial renewables, you are about 70% line of sight for the five-year plan. Is there a possibility that you might be considering increasing the $2.5 billion investment plan for that segment?

That will be something, Michael, we look at in connection with our five-year planning process, which is underway. But as we think about the five years, given all of the other capital investment opportunities we have, we are really looking for this segment to consistently deliver kind of at the level at that in 2019. And we have a high degree of confidence in its ability to do that because of the 70% that we have already locked in on growth target. So that's probably the way I would think about it at this point. But consistent with five-year planning, we will give every segment a review and make sure it has our best thinking as we come to the street with guidance in February.

Got you. And one last question on that on Bloom Energy. How did you guys get involved with fuel cells? Like what was the -- how did that decision process come about, just curious?

Michael, we have a team that is looking at what I would call customer solutions. And so this is a team that works with large industrial, large commercial customers and really is working to customize solutions that those customers need to meet their energy requirements. It can be renewables, it can be battery technology, it can be microgrids, it could be a fuel cell technology. And so the Bloom investment was consistent with the growth priorities that that team is focused on and we believe this notion of customization of energy for large energy users is a trend that will just continue to grow.

Great. Thank you very much.

Thank you.

Thank you.

Thank you. Our next question comes from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Hi. Good morning. Thanks for the time.

Hi Julien.

Hi. Good morning. So Lynn, just going back to some of the comments you made earlier with respect to the coal ash order with the DEQ. Can you elaborate basically the next steps after the Judge's actions recently and just some of the specific nuances of how you go forward on appeals, et cetera?

Sure. Simply put, Julien, we are moving forward on the appeal. And so what we would expect is a procedural calendar to come out establishing discovery and hearings and so on. And so we will continue to challenge the underlying decision itself, the science and engineering, the cost considerations, et cetera. We would expect a hearing to be in 2020 and we will know more as the calendar is established.

Got it.

So I think it is a partial dismissal. Yes, partial dismissal.

Yes, absolutely, indeed. And then just if I can turn the focus back to Indiana quickly, you talked about the filing here. Can you elaborate a little bit with respect to the planning process and generation decisions? I know you talked about some acceleration here, but just more of the specifics here? I know the state has got a good bit of attention. So I just want to perhaps dig a little bit.

Julien, the team in Indiana has done a lot of very good work to think about a thoughtful approach around the generation mix in the state. And so we have put together a proposal that shortens the life of certain of the assets and then introduces more investment in renewables and in natural gas which you will see in the IRP plan. So I think the first thing to focus on is the rate case which will run over the next six to nine months. And then the integrated resource plan is something that will continue to be a topic of discussion and review in the state. We believe we have put together a very thoughtful approach. We have had a very active stakeholder engagement not only with customers but with policymakers in the state and believe we have put forward a very thoughtful plan for Indiana.

Got it. But no timeline for further acceleration, right? It still seems like the acceleration is pretty long dated, right, to the remaining asset life?

I think I would ask you to look at it because there is a fair amount acceleration on a couple of the units and then those will be a topic of discussion. Of course, as we go through the rate case and when I say we put together a thoughtful plan, I think that invites and offers an opportunity for further discussion, both with regulators and with other intervening parties. And our commitment is to develop a plan that makes sense for the customers of Indiana but also continues to lower carbon. And we think we have started that conversation well with the rate case and with the IRP.

Excellent. Thank you very much for the time.

Thank you.

Thank you.

Thank you. We will next go to Praful Mehta with Citigroup. Please go ahead.

Thanks so much. Hi guys.

Good morning.

Hello.

Morning. So a lot of topics covered so far. So I appreciate that. I just wanted to get a little bit more on the North Carolina, the DEQ that you just talked about. The $4 billion to $5 billion spend, if you could dimension for us what the risks are if you are not successful in the appeal in terms of is it all of a customer bill impacts and so that's the worry? Or is there some concern that some part of that $4 billion to $5 billion is not recoverable?

Praful, I would make a couple of comments on that. And the first one is that the impact of the excavation order has a very limited impact on the five-year plan. So $200 million to $400 million falling in that five-year period because of the time required to secure permits and construct landfills and other things contemplated by the order. So we are talking about a period of time that is outside of the five years and with full excavation could extend all the way into the 2040 for certain of the sites. And so I think what it represents is a longer closure period that, in our opinion, increases cost without a measurable improvement in environmental benefits. And that will be the discussion as we go forward. The North Carolina commission has approved recovery of costs for coal ash and so I would ask you to look at that order in terms of the press in the state and we will continue to make progress on these basins. Our commitment and DEQ's is exactly the same, which is to close them safely and that's where our focus remains as we pursue these legal matters and some fine tuning of the approach over the long term to close the basin.

Got you. Super helpful. Thank you. And then maybe just the same color on the South Carolina side, in terms of appealing the cases there. Could you give us some color on the specific issues that you are more focused on and how you see that playing out?

Sure. In South Carolina, Praful, we are awaiting a final order on the cases. So we have gotten the directive. We have gotten the rehearing. But the actual order on rehearing has not yet been filed. We would expect it in the next period of time and then we have 30 days to appeal the order which we intend to do and we would appeal to the Supreme Court in South Carolina. The disallowance of coal ash costs will be a part of that appeal. And I think it's important to recognize that the precedent between North and South Carolina is a long-standing one where the benefits between the two states are shared on generation and transmission. And remediation of coal ash would be a part of the decommissioning of plants. And these plants that then share the benefits of those plants with South Carolina customers over their entire life. I think it's also important to recognize that both the federal and the state laws establish safe basin closure methods and excavation is an option in both. And so we would intend to continue to pursue this. I think the timeframe you should think about is probably one to two years to work through the process. But the cost doesn't start until we get the order and then file the appeal within 30 days. So we will continue to keep you posted as it moves through the process.

Got you. Thank you. And then just finally in terms of, clearly you are having a strong first half. Is there any assumption on incremental O&M being pulled forward, given you have some budget or some room in your numbers to kind of maintain within the guidance? I just wanted to understand kind of any shipping on the O&M side for the second half?

Well, Praful, that capability to move O&M back and forth and toggle it based upon results is a core skill set that we have. It remains to be seen in the second half of the year dependent upon weather, storm activity and those kind of things whether we will pull those levers. But I mentioned, we pulled some of them in response to the mild weather in the first couple of months of the year. We have the capability of redirecting O&M in different fashion when we see favorable results as well. But I don't want to give any firm guidance going forward. We still have got the third quarter to go and the weather and storm sit in front of us. But we do have that capability.

And Praful, the objective of all of this is to deliver on our commitments around the guidance that we have provided for the street and that's the way we will approach this.

Understood. Thanks so much guys and congratulations.

Thank you.

Thank you. Our next question comes from Michael Lapides with Goldman Sachs. Please go ahead.

Hi guys.

Hi Michael.

Hi Lynn. I wanted to ask about North Carolina renewables. And can you remind us, A, what's already in your forecast for the amount of renewables you are building in North Carolina where you have already got approval through the RFP process? And then, can you remind us what the limits are and how much you think you could wind up doing beyond what's already known or in your plan?

Yes, Michael, I will take that. And regarding the limits to the HB589 regulations, there is a limit to our bidding and winning bids to 30% of the tranches that are going to be bid over the next several years. There is no limit to subsequent acquisition of another winning bidder's part interest. So ultimately we could own a higher percentage than 30% of the renewables assets from HB589. I think for planning purposes, we have got about 30% in our plan. We have typically thought about that being in the commercial renewables segment. But it could be within the regulated business segment or the commercial renewables. The first tranche that was awarded of roughly 600 megawatts between regulated and commercial, we got about a third of that. So I think that's a reasonable planning assumption going forward.

So roughly a couple hundred megawatts a year installed run rate? Or is that a couple hundred megawatts over a several year period?

It will depend upon how much is bid through the process. We saw 600 megawatts. Initially it was 680 megawatts, but only 600 was awarded. If the tranches stayed at that level then it might be in the ballpark of 150 to 200 megawatts. The tranches going forward may be smaller than that as we grandfather other renewables into the process. But you can think about those numbers as a reasonable number to think about.

Got it. Thank you. much appreciated.

Thank you Michael.

Thank you. And our next question comes from Sophie Karp with KeyBanc. Please go ahead.

Hi. Good morning. Congrats on the quarter.

Hi Sophie.

Thank you.

I wanted to also a question on renewables and maybe from an angle that has clearly been a very successful program for you and an attractive niche. Is there a way to do more along those lines in addition to these tranches, maybe just those strictly in the commercial renewable space? And what's your view the probability that we are going to see some ITC and PTC extension?

A couple of things here. On the tranches of renewables that come through the HB589, we will continue to participate at that level. We think it makes sense. We know the service area. We know the grid surrounding of these assets. So again, I think that it will continue to be fruitful for us over the next several years. Regarding ITC and PTC extensions, again, we have heard nothing about extending that specifically. They are set to expire and that is what we are basing our plans upon is that those particular tax benefits will begin to wind down.

And Sophie, we commented a moment ago on the strength of the pipeline that sits in the commercial business. We feel very confident with our ability to deliver within our five-year plan and have a robust pipeline to support that. I think in terms of the Congressional extension of the credits, there is some discussion underway about that. We have been supporters of Congress' bipartisan agreement to fade them down. We believe that the economic competitiveness of the resource is very attractive and as a result are supportive of that fade down. But I think we will have to see what plays outs as the process continues in Washington.

Got you. Thank you. And then maybe, if I may, a quick follow-up on the coal ash in South Carolina. So your appeal right now is to the State Supreme Court, correct?

Yes.

But ultimately, the issue is how these costs would be allocated between two different states? And should we expect this litigation ultimately find its way to the federal court?

I believe the South Carolina Supreme Court is where it will be decided, Sophie. And there is a great deal of precedent over decades around the allocation of costs between North and South Carolina. We run the generation and transmission system as a system between North and South Carolina and have very established methods of allocating costs. And so we will be presenting very strong arguments on those costs and believe that it will be resolved at the Supreme Court level in South Carolina.

Got it. Thank you very much. Very helpful color.

Thank you Sophie.

Thank you.

Thank you. And ladies and gentlemen, that does conclude today's question-and-answer session. I would like to turn the conference back over to Lynn Good for any additional or closing remarks.

Well, thank you everyone. We appreciate your interest and investment in Duke Energy. Our IR team will be available this afternoon as usual to answer any follow-up questions and we look forward to seeing many of you in the weeks to come. Thanks so much.

Thank you. And with that, that does conclude today's call. We thank you for your participation. You may now disconnect.